Why Are the SEC and Warren Buffett Arguing Over $344,490?

In a little noticed mini-flurry of correspondence with the Securities and Exchange Commission, Warren Buffett’s Berkshire Hathaway got into an odd tiff with the agency over how to disclose the company’s payments for Buffett’s personal and home-security services.

The total tab for Buffett’s security: $344,490. That’s not even enough to buy three measly shares of Berkshire class A stock.

Associated Press

The question is, Why?

The SEC in May asked Berkshire to revise its proxy statement to reflect the company’s payments for Buffett’s security services. In its proxy this March, Berkshire didn’t include the payments as part of Buffett’s compensation, but did mention them in its “compensation discussion and analysis,” a fairly dull regurgitation of how much and why a company pays executives and directors. Berkshire told the SEC that’s plenty of disclosure.

“We do not believe that personal and home security services provided for Mr. Buffett should be deemed a form of compensation,” Berkshire responded to the SEC division of corporate finance.

Berkshire said in its response that it mentions Buffett’s security expense in its proxy statement “to provide information to our shareholders that we deemed to be relevant when considering the election of Mr. Buffett as a director.”

Berkshire then offered a halfway measure to the SEC. The company said it would put the disclosure in the “related persons transactions” – the part of the proxy where companies disclose payments to relatives of directors or executives, and business dealings with companies of directors.

Not so fast, the SEC said.

The agency responded: “We believe that the personal and home security services for Mr. Buffett are not integrally and directly related to the performance of Mr. Buffett’s job, and we believe that those services confer a direct benefit that has a personal aspect….Please confirm that in future filings you will disclose the cost of personal and home security services in the Summary Compensation Table.

Berkshire finally caved in.

“We agree that personal and home security services provided for a named executive officer should be reported under ‘All Other Compensation’ in the Summary Compensation Table. Accordingly, in future filings we will disclose costs related to personal and home security, to the extent provided for Mr. Buffett or any other named executive officer, in the Summary Compensation Table.”

It’s not entirely clear why the SEC raised this issue with Berkshire now. In at least the prior two years, Berkshire has disclosed how much it pays to protect Buffett -– one of America’s most high-profile business executives. Such expenses are fairly commonplace, even for CEOs most people couldn’t pick out of a lineup. McKesson, for example, paid $129,041for home security devices and other security-related services for CEO John Hammergren.

Of course, the Journal has reported another instance the SEC took issue with Berkshire disclosures, over how it told Burlington Northern shareholders about an offer to buy the company last year.

Nor is it clear why Berkshire was arguing over including security expenses from the formal disclosure of Buffett’s pay -– something that is fairly standard for other companies. Perhaps one factor is the mystique surrounding the relatively low pay for Buffett. Adding in the security expenses would significantly pad Buffett’s reported compensation.

Buffett and Berkshire Vice Chairman Charlie Munger each have been paid an annual salary of $100,000 for more than a quarter century, Berkshire has said. And they don’t take the standard corporate bigwig perks, like using company jets or joining country clubs on the company’s dime. Buffett’s compensation from Berkshire, including director fees, is around $175,000 right now. Presumably Berkshire will need to pay Todd Combs, in line to take over at least part of Buffett’s investing duties, a little more.

Comments (2 of 2)

Its worth pointing out that the media really did little to question Buffett over his support of Goldman Sachs over the sale of financial products that were designed to fail, in the past he has derided wall street and there behaviour and then he buys in during a time of financial stress receiving preference shares. I am sorry but you would expect the wall street journal to at least scrutinise this kind of activity.... I know it has questioned why a corporation like GS behaves against shareholders in this fashion, by selling preference shares when there was no need to and by selling products that are designed to fail.

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